Star Exclusive: BMV ignored overcharges

Top officials at the Indiana Bureau of Motor Vehicles knew for years they were likely gouging Hoosier motorists with tens of millions of dollars in excessive and illegal fees for driver's licenses and other services.

But those officials chose to ignore or cover up the overcharges rather than refund the extra money and adjust to significant budget losses, an Indianapolis Star investigation has found.

The Star's investigation shows that numerous officials — including former BMV Commissioner R. Scott Waddell and his chief of staff — knew about potential overcharges for years. Yet in sworn testimony last year Waddell, claimed the mere possibility that the state might be overcharging customers was news to him and the entire agency.

"We were completely blindsided by it," he said.

State officials have portrayed the overcharges as an innocent mistake, but emails obtained by The Star show that two years before Waddell claimed the agency was blindsided, he received a spreadsheet from a deputy BMV director identifying 17 overcharges.

Additionally, one of Waddell's top deputy commissioners testified in a pending lawsuit that he urged Waddell and then-Chief of Staff Shawn Walters to conduct an independent audit of the bogus fees.

He said they refused.

One official said the BMV — which, like other state agencies at the time, was under pressure from then-Gov. Mitch Daniels to return cash to the treasury — did not want to refund the ill-gotten money because it would require a budget cut.

It's hard to overstate the gravity of those decisions.

Every day they hesitated to fix the problem, the BMV overcharges averaged more than $23,000, all of it coming directly out of Hoosier motorists' pockets. That's about $1,000 an hour, every hour of every day, for two long years.

By the time someone blew the whistle and a class-action lawsuit was filed in 2013, the state had over-billed Hoosiers more than $60 million going back to 2007.

It's being paid back now. But there's no indication in the records examined by The Star that BMV leadership had any intention of fixing the fees until backed into a corner by the lawsuit. Instead, they hushed their internal critics, insisting the fees were accurate, despite the findings of a yearlong study.

Though discussed within the BMV, the overcharges didn't come to light publicly until the first class-action lawsuit was filed in March 2013 by Irwin Levin of the Indianapolis law firm Cohen & Malad. Only then did the BMV approve an audit of its fees. And it was months later, after the audit confirmed that many fees were, indeed, higher than allowed by law, that the agency finally fessed up to its price gouging and began to pay back motorists.

The full extent of the damage is not yet known. A second lawsuit alleges as much as $38 million more was wrongfully charged. The BMV is fighting that claim, but if true it would bring the total overcharges to about $100 million.

Despite all of this, no one from the state or BMV has apologized to customers. No one has taken responsibility or offered a clear explanation of what really happened. And no one has been publicly disciplined or fired.

On the contrary, several of the agency officials who shrugged their duties to uphold Indiana law remain at the BMV or in other state jobs.

Gov. Mike Pence last month appointed a new BMV commissioner, Kent Abernathy, and state officials are insisting it's time to move on. "I want the back office at the BMV to run as well as the front office," the governor explained.

Abernathy declined to address questions regarding the overcharges, portraying them as "the battle of he said/she said taking place in the courts and the media."

But, in announcing his change of leadership, Pence also had a warning for Hoosiers: An ongoing BMV review by accounting firm BKD could identify more overcharges.

"I want to emphasize," Pence said, "there will likely be more to come."

Overcharges known for years

Current and former BMV officials declined to comment for this story. But more than a thousand pages of internal BMV documents, email messages and sworn video depositions examined by The Star offer a rare glimpse into the inner workings of the BMV's many political appointees as they grappled with internal reports of overcharges.

Before the overcharge debacle, the BMV appeared to be an amazing success story.

Reforms implemented by the Daniels administration had cut long wait times and drastically improved customer service at the agency's license branches. Those reforms had been a keystone of Daniels' platform when he ran for office in 2004, and the turnaround, along with the state's budget surplus, became feathers in the governor's cap.

Indications of fee problems go back at least to 2007, when the BMV was in the midst of improving customer service. Records show staff attorney Mark Goodrich spent nearly a year reviewing statutes and fees from 2007 to 2008.

Despite that review, former commissioner Andrew Miller still had enough concerns to assign Mathew Foley, who would become the BMV's deputy director for fee management, to the "major project" of reviewing the agency's fees again in mid-2010.

Why the BMV would need at least two separate fee reviews over a period of about three years, particularly when few fees were changed during that time period, is not clear.

But at least some of the problems that ultimately resulted in refunds were tied to the agency's implementation from 2006 to 2008 of its System Track and Record Support (STARS) database.

Foley's testimony indicated the philosophy was that "speed was more important" than accuracy in entering new information into that system.

"We could cram it in," Foley said, "and fix the problems later."

A 'Fee Code War Plan'

Determining the correct charges for BMV transactions is no easy task.

"The current system is extremely complicated because of thousands of statutes, regulations, classifications and 92 different taxing authorities all on top of over 1,100 fees and taxes," new commissioner Abernathy explained in an email to The Star.

Foley and others who tried to "map" those fees were required to pore over law books, legislation and agency records to determine when changes took effect and how they affected individual fees.

Foley, a former banker, said in a deposition that when he first met with Waddell — then chief of staff overseeing BMV finances — about the project, Waddell "was concerned about inaccurate information" being included in the agency's fee chart.

When Miller resigned in October 2010, following his arrest for public indecency in a men's room at Claypool Court, Foley continued to work on the project. But instead of reporting to Waddell, who was named to succeed Miller as commissioner, Foley was placed under the supervision of Shannon Dickson. She was the BMV's director of vehicle programs and reported to Deputy Commissioner Ron Hendrickson.

Around that time, Foley created and distributed a "Fee Code War Plan" that said "bureau confidence in the accuracy of the Fee Chart is marginal at best" and laid out his plans for a comprehensive review of all of the agency's charges.

Over the next nine months, Foley meticulously conducted that audit, finishing his review in May 2011.

In an email to Dickson and four other BMV officials — including general counsel Elizabeth Murphy and controller Harold Day, both members of the BMV's "lead team" of top executives — Foley warned that the concerns about fee accuracy had been confirmed.

"There are a lot of discrepancies between what BMV currently charges and what I've been able to calculate," Foley wrote.

On June 16, 2011, Foley sent the same group another email with a spreadsheet that showed fee errors highlighted in red for suspected overcharges and blue for suspected undercharges.

"I've counted 26 fees where we are potentially undercharging," Foley wrote, "and another 17 where we are potentially overcharging."

'Print these out for me'

In response to Foley's report, Dickson quickly set up a series of meetings with key agency staff members. The group included Foley, staff attorney Goodrich, Day, Hendrickson and Stephen Leak, the BMVs executive director of credential programs.

Minutes from the first meeting in late June 2011 say the group reviewed Foley's work, focusing in on two driver's license fees that Foley had called into question. If he was right, those fees had the potential for a major hit to BMV finances.

A week later, on July 7, 2011, Dickson emailed Foley's spreadsheet to Hendrickson, the deputy commissioner.

Later that day, Hendrickson forwarded Foley's "final" report — with the 43 fees Foley was questioning highlighted in red and blue — to Waddell. He noted in the email that Foley had spent "about one year" on the project.

Hendrickson also forwarded the same email, including Foley's spreadsheet, to Walters, the chief of staff.

Three years later Waddell would testify under oath that he never saw Foley's spreadsheet.

"I am aware of it," Waddell said, "but I have not seen that."

But on July 11, 2011, four days after receiving the spreadsheet, Waddell forwarded the email to his executive assistant.

Waddell's request: "Can you print these out for me."

Directors discussed options

Meanwhile, the group of high-level BMV officials reviewing Foley's work continued to meet.

Foley and a BMV intern each independently re-examined Foley's work and confirmed a $4 overcharge for the 6-year drivers license.

By the Aug. 24, 2011, meeting there was a consensus that the current $21 fee was too high.

"The committee generally agreed," minutes say, "that $17.00 is the charge currently allowed."

Minutes show the team discussed the possibility of adding a new regulation to legitimize the unauthorized $21 fee the BMV was charging. But they concluded any action would need to be "a lead team decision."

Deputy commissioner Hendrickson was to "work with legal, finance and the lead team to determine the next step in this process. This may include bringing in an outside, independent audit team," the minutes say.

The fee problems presented a dilemma for the agency. At that time the BMV, like other state agencies, was under strict orders from Daniels to cut spending and return a portion of its budget to the state's general fund.

Foley warned Hendrickson a fix would be expensive.

His prediction: "a revenue loss of $8,400,000 in 2012 alone." All from that one fee.

Officials refuse audit request

Hendrickson said he went to the lead team in mid-2011 and personally spoke with Walters and Waddell about Foley's findings.

Hendrickson said he suggested to Walters and the lead team that the BMV conduct an outside audit, but that Walters "disagreed with that idea."

"Shawn Walters told me that he knows for a fact that Mark (Goodrich) looked at these fees and said they were good," Hendrickson said under oath.

Some time after meeting with Walters and other members of the lead team, Hendrickson said he also approached Waddell about the fee issue.

"And he didn't tell me no," Hendrickson said, "but he changed the subject, in my opinion, somewhat deliberately, and I assumed that that was no."

Later, he went back to Walters to again request the outside audit, Hendrickson said — even though he, too, had questions about the errors Foley reported finding.

"I thought that it made sense to do an audit," he said. "Felt like due diligence. Seemed like something we should do ... so I went in again and I talked to Shawn about it again."

Walters rebuffed Hendrickson a second time.

"He said, 'No. These are our fees,'" Hendrickson testified. "And I remember that, 'No. These are our fees.' I don't know exactly what he said after that, but the answer was no."

Still, Hendrickson said, he continued to push for an audit, going to Leak, a friend of Walters', for support.

But Leak declined to step in.

"He said — I remember he said, 'Nah,'" Hendrickson testified.

'Do you understand me?'

Hendrickson wasn't alone in going to Waddell and Walters about problems with BMV fees.

Foley said he also had conversations with them to object to any effort to change rules to match the overcharges he had uncovered.

Instead of fixing the problems, Foley said, in his opinion Waddell and other top officials preferred to look for a way "to rewrite the regulations so they matched the fees being charged rather than refund the fees to taxpayers."

When asked why BMV did not refund or fix the errors until after the first lawsuit was filed, Foley said, "my opinion is that … the BMV needed to keep the money." Foley said that opinion was based on conversations he had with others at the BMV.

The overcharges exceeded the $47 million the BMV turned back to the state's bank account from 2006 to 2014, money that contributed to a state budget surplus. At the time, Indiana was being promoted as the "fiscal envy of the nation" with a budget surplus built on frugal government and low taxes.

The largest amount BMV returned to the treasury — $10.3 million — came in 2011, the same year Waddell and Walters were told of the overcharges. It was also the same year Foley pointed out that correcting just one of the excessive fees would wipe out $8.4 million in BMV revenue the following year.

"There was a concern that the BMV would need to potentially lay off employees," Foley said, "or go back to the well and borrow money again when they had very publicly repaid the last of its government — or state-borrowed loans the prior year."

Foley's said his candor in his meeting with Waddell didn't sit well with the commissioner.

"By the time I had finished the walk back to my desk, I'd barely sat down," Foley said, when he was called into Walters' office "and yelled at."

"I was told that I interrupted work that they had been doing ... on the proposed rules for the last six months to a year, and loudly told that," Foley said under oath.

Walters is a former Army Colonel, he explained, "and when he's angry, its clear."

"Mr. Walters asked me in the middle of his — I don't know what to call it — for a lack of a better term, rant, he said 'Are we clear now? Do you understand me?'"

"Frankly, sir, no, I do not," Foley said he responded.

Walters sent him back to his desk.

And word of the possible overcharges remained a closely guarded secret within BMV.

"I was told frequently," Foley said, "that this was a confidential project."

No action taken

Foley left the BMV in 2012, not long after that run-in with Walters.

Any effort to correct the illegal fees ground to a halt.

Dickson, Foley's surpervisor, said the fee evaluations project was "tabled" and "not reassigned." Other projects, she said, took precedent.

But the agency could no longer ignore the problem when a class action lawsuit was filed on behalf of Hoosier motorists in March 2013. It alleged that BMV customers had been routinely overcharged for driver's license fees.

Four months later, the BMV admitted that overcharge and announced it would cut fees and refund customers $30 million.

But even then, BMV officials downplayed their previous knowledge of the fees.

"There was a miscalculation," BMV spokesman Josh Gillespie told media outlets at the time, "and once we discovered that miscalculation, we immediately took steps to lower the driver's license fees."

Agency officials never mentioned that Foley had identified that problem nearly three years earlier.

The BMV did, however, announce in September 2013 that it had overcharged for other fees as well. The second lawsuit was filed the following month.

The new suit alleges $38 million in additional overcharges — and perhaps millions more. The amount hinges, in part, on the question of whether the BMV covered up its price gouging. If so, motorists could be entitled to refunds for overcharges that occurred prior to the statute of limitations that normally applies in such cases.

The BMV, which already doled out $6 million in legal fees to settle the first lawsuit, continues to fight the new case, with Waddell and other officials avoiding questions and claiming they knew little or nothing about the fee problems.

Waddell was deposed in April and again in September after a judge ordered him to answer numerous questions that he had refused to address during his first deposition. In those interviews, he denied any advance warning about the overcharges, claiming he was aware only that Foley had called one or two fees into question.

But even those, he insisted, had been reviewed and discredited by a team of BMV directors and legal staff, including Hendrickson and Goodrich. He also testified that he was unaware of any other fees Foley called into question.

Waddell acknowledged, however, that Foley was not disciplined for making any alleged errors. And records show that Foley was approved for a merit raise during that time.

Hendrickson and Dickson also wrote glowing recommendations for Foley just months after he had called dozens of fees into question. The two supervisors cited Foley's work on the fee project as an example of his "commitment to integrity and accuracy."

They said "the BMV and more importantly Hoosier taxpayers are better off due to Mat's direct contributions to the agency."

And ultimately, when the dust settled from the first lawsuit in 2013, his calculations of the driver's license fee error proved accurate.

Star researcher Cathy Knapp contributed to this story.

Call Tim Evans at (317) 444-6204. Follow him on Twitter: @starwatchtim. all Tony Cook at (317) 444-6089. Follow him on Twitter: @indystartony.

The Players

Andrew Miller

BMV Commissioner – Jan. 5, 2009 to Oct. 7, 2010

In 2010 assigned Mathew Foley to review BMV fees and report to deputy commissioner Scott Waddell

Scott Waddell

BMV Deputy Commissioner – March 3, 2009 to Oct. 27, 2010

BMV Commissioner – Oct. 28, 2010 to Nov. 11, 2013

Supervised Foley's fee review project before appointed commissioner. Notified by Foley and deputy director Ron Hendrickson in 2011 that Foley had found problems with fees; received email from Hendrickson that included Foley spreadsheet highlighting 17 overcharges in July 2011, and asked assistant to print out spreadsheet; declined Hendrickson's recommendation in mid-2011 that BMV launch outside audit of fees; denied any knowledge of potential overcharges before lawsuit filed in 2013.

Mathew Foley

BVM registration and processing – April 5, 2010 to July 1, 2010

BMV Financial operation – July 1, 2010 to Sept. 12, 2010

Deputy Director for Fee Code Management – Sept. 13, 2010 to Jan. 12, 2012

Spent more than a year reviewing BMV fees; issued report in June 2011 questioning 43 fees, including 17 suspected overcharges; participated in meetings where top BMV officials reviewed his finding; told Waddell he did not approve of plan to change BMV rules to match amount agency was illegally charging.

Shawn Walters

BMV hearing officer, field services, policy and programs — May 23, 2005 to March 20,2011

BMV Chief of Staff – March 21, 2011 to May 5, 2013

Was notified of Foley's findings of suspected overcharges in July 2011; twice refused request from deputy director Ron Hendricks to launch outside audit of BMV fees; chastised Foley for telling commissioner Waddell the BMV needed to repay Hoosiers for overcharges.

Ron Hendrickson

BMV Commission regional manager – Dec. 6, 2004 to Feb. 8, 2009

Deputy Commissioner Policy and Programs – Feb. 9, 2009 to Sept. 1, 2013

Received copies of Foley's reports alleging overcharges in summer of 2011; attended meetings where Foley's findings were discussed and reviewed; was informed in July 2011 that cutting drivers license fee to legal amount would cost BMV $8.4 million in 2012; approached chief of staff Walters and commissioner Waddell to request outside audit of fees and was denied.

Mark Goodrich

BMV legal division, administrative services, licensing and credentialing administration, legal – Aug. 20, 2007 to Dec. 22, 2013.

Spent nearly a year reviewing BMV fees before Foley's review; participated in meetings with top BMV officials in summer of 2011 to discuss and review Foley's findings; assured Waddell and Walters that Foley was wrong and current BMV fees were accurate, according to Waddell.

Elizabeth Murphy

BMV staff attorney – Sept. 14, 2009 to Sept. 12, 2010

BMV general counsel – Sept. 13, 2010 to Nov. 24, 2013

Received emails and spreadsheets from Foley in May and June 2011 detailing 17 suspected overcharges and 26 suspected undercharges; supervised Goodrich, who Waddell said told him and Walters that Foley was wrong and current BMV fees were accurate.

Harold Day

BMV financial analyst – Jan. 2, 2007 to Dec. 20, 2007

BMV chief financial officer – Jan. 21, 2007 to present

Received emails and spreadsheets from Foley in May and June 2011 detailing 17 suspected overcharges and 26 suspected undercharges; was invited to participate in and received minutes from meetings with top BMV officials in summer of 2011 where Foley's findings were discussed and reviewed; later denied any knowledge of possible overcharges or any involvement with fee issues.